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Thursday, September 18, 2014

Sars applies to liquidate Sharemax

Sars applies to liquidate Sharemax

September 18 2014 at 07:45am
By Roy Cokayne Comment on this story

Reuters
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The South African Revenue Service (Sars) has applied to the North Gauteng High Court to liquidate Sharemax Investments, the property syndication promotion and marketing firm that collapsed in 2010 and was deemed a Ponzi scheme by the ombud for financial advisory and intermediary services (Fais).

Sars is also applying for Sharemax’s business rescue proceedings, which were launched in November 2011, to be set aside and terminated because of non-compliance with the Companies Act. The application has been prompted by the alleged inability of Sharemax to pay Sars R15.7 million in outstanding taxes.

The application, among other things, reveals that a business rescue plan has to date not yet been published for Sharemax Investments, despite a business rescue practitioner being appointed to Sharemax on December 7, 2011.

Rescue

The Companies Act requires a business rescue plan to be published by the company within 25 business days of the business rescue practitioner being appointed, or any longer time allowed by the court or the holders of a majority of the creditors’ voting interest.

About 33 000 investors invested about R4.5 billion in Sharemax’s various schemes.

Sharemax’s collapse in 2010 was precipitated when a finding that its funding model contravened the Banks Act became public knowledge after an investigation by the registrar of banks at the Reserve Bank.

This led to new investments drying up and it being unable to make monthly payments to investors.

The registrar of banks placed Sharemax under statutory management in September 2010 and appointed two statutory managers with a mandate to manage the repayment of investors’ funds or seek other legal alternatives.

In January 2012 the North Gauteng High Court sanctioned a scheme of arrangement and offer of compromise to shareholders.

The registrar of banks laid criminal charges against Sharemax for alleged contraventions of the Banks Act in March 2012.

In its application, Sars cites Sharemax and six other respondents, including Liebenberg van der Merwe, Sharemax’s appointed business rescue practitioner; the Companies and Intellectual Property Commission; former Sharemax managing director and creditor Willie Botha; former Sharemax director and creditor Andre Brand; former Sharemax director Dominique Haese, who is now managing director of the Nova Property Group and Frontier Asset Management, which took over and manages Sharemax’s property portfolio in terms of a high court-approved restructuring of Sharemax; and Nova Property Group chairman Connie Myburgh.

Elle-Sarah Rossato, a Sars official, said in an affidavit filed in support of the application that Van der Merwe confirmed in September last year that Sharemax was unable to pay the debt owing to Sars because of an unforeseen development.

This was the determination delivered by the Fais ombud between Gerbrecht Siegrist and various Sharemax group companies, including Sharemax Investments, in terms of which all of these companies were held jointly and severally liable for the payment of R580 000 to Siegrist.

Complaints

Rossato said Myburgh had indicated that about 500 further complaints had been lodged with the Fais ombud as a result of this ruling, and until the appeal against this had been determined, the debts owed to Sars could not be paid.

She said Van Merwe claimed in October last year that a business rescue plan for Sharemax could not be finalised until the Sars claim was finally quantified and finality was achieved on the complaints adjudicated by the Fais ombud.

Rossato said the quantification of Sars’s claim was “disingenuous and incorrect” because the correctness of the tax debt was confirmed at a meeting in September last year.

Van der Merwe’s assertion that the business rescue plan could not be finalised until finality was achieved regarding the Siegrist determination was “equally disingenuous”.

Rossato said Van der Merwe was appointed Sharemax’s business rescue practitioner on December 7, 2011, and the Siegrist determination was only handed down on January 29 last year.

To date, no business rescue plan for Sharemax Investments had been published, she said.

Rossato said Sharemax and Botha, Brand, Haese and Myburgh were aware that Sharemax did not have any assets to pay its creditors but “they disingenuously abuse the Siegrist determination”.

Rossato claimed Sharemax’s business rescue proceedings terminated after the expiry of the 25-day period from Van der Merwe’s appointment when he failed to publish a business rescue plan. She said Van der Merwe had claimed in October last year that consent had been obtained for an extension from Botha and Brand.

In a response to Sars’s application filed this week, Sharemax Investments said the failure by Sars to cite and join Siegrist as a respondent made its application defective because Siegrist’s rights as a creditor would be prejudiced if its application was successful.

SHAREMAX Investments, its network of financial advisers and four of its directors – Gert Goosen, Willie Botha, Dominique Haese and André Brand – were involved “in a scheme calculated to defraud members of the public”, financial advisory and intermediary services (Fais) ombud Noluntu Bam said yesterday.

Bam reached this conclusion in her latest determination on a complaint lodged by a 73-year-old female pensioner from Heidelberg in the Western Cape against financial adviser Edward Carter-Smith after investing R490 000 in the Zambezi Retail Park on Carter-Smith’s advice.

Carter-Smith complained that he had been misled by the directors of Sharemax and called them “liars”.

In an earlier determination Bam said Sharemax was “nothing more than a Ponzi scheme” in which investors were paid interest out of their own funds.

Business Report confirmed in October last year that the Hawks were investigating allegations that Sharemax committed fraud and operated a pyramid or Ponzi scheme.

About 40 000 people invested about R4.5 billion in the various schemes promoted and marketed by Sharemax.

It defaulted on monthly payments to investors in August 2010 when a decision by the registrar of banks that Sharemax’s funding model contravened the Banks Act became public knowledge.

ACT Audit Solution told the ombud that it had concluded after seeking a legal opinion that the transfer of investor funds from the trust account of Sharemax attorneys Weavind & Weavind to the investment property companies in The Villa and Zambezi schemes, prior to the registration of transfer of the property to investment property companies, “may constitute a reportable irregularity on a proper interpretation of the prospectuses”.

However, Sharemax directors claimed no reportable irregularity occurred because a bona fide “copy and paste” mistake had occurred during the drafting of the prospectuses.

Bam said this claim by the directors of Sharemax was “disingenuous and against the probabilities”.

She said her office was in possession of promotional pamphlets produced and distributed by Sharemax in 2010 that also stated investors’ funds would be paid into the trust account of Weavind & Weavind attorneys until the property was ready for transfer into the investors’ names.

Bam said Sharemax, FSP Network and the four Sharemax directors on their own version knew at the time of producing this pamphlet that they were “wilfully and deliberately misleading members of the public” because of the “cut and paste error” and the prospectus was subject to rectification.

They failed to explain why this “error” was only discovered after the Reserve Bank intervened in 2010 and after the scheme had already collapsed. They also failed to explain why Weavind & Weavind, which allegedly made the mistake, did not file any papers or correspondence in support of the “cut and paste error” version.

Bam said Weavind & Weavind had further failed to explain why it did not inform investors there was an error before it started paying the funds out of its trust account.

She said Weavind & Weavind had never supported the notion of an error in the prospectus. The law firm was of the opinion that the government notice on property syndications did not apply to this scheme and it was therefore not illegal to pay the money from the trust.

Letters sent to each investor by Sharemax, acknowledging the investment and stating that their investment had been deposited into Weavind & Weavind’s trust account, and kept there until the investment amount was processed and the property was transferred, were “equally untrue and misleading” because on Sharemax’s version this was a mistake.

Bam said these letters of confirmation were still being written to investors after the “mistake” was discovered.

“The only reasonable conclusion to be drawn… is that the second to seventh respondents [Sharemax, FSP Network and the four Sharemax directors] were involved in a scheme calculated to defraud members of the public,” she said.
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Sharemax investors waiting for appeal

October 27 2013 at 12:15pm
By Bruce Cameron
The ability of the 34 000 people who invested more than R4.4 billion in the imploded Sharemax property syndication schemes to recover their financial losses from the directors of Sharemax companies and the financial advisers who placed them in the investments, may depend on the Appeal Board of the Financial Services Board (FSB).

In a statement issued yesterday, the FSB says its Appeal Board is currently hearing appeals against determinations issued by the financial advice ombud, Noluntu Bam, in which she ordered Sharemax directors and financial advisers to jointly and severally repay the investment losses of investors.

The FSB issued the statement following a threatening letter sent to Sharemax investors by Dominique Haese, the former managing and financial director of Sharemax, who now heads two companies, Nova Property Group and Frontier Asset Management & Investments, which have taken over the problematic Sharemax property portfolio in terms of a restructuring sanctioned by the High Court in January last year.

In her letter, Haese claimed that there was no link between Sharemax and the Nova and Frontier companies and that Sharemax no longer exists in terms of the scheme of arrangement.

Haese told the investors that, should they persist in seeking repayment of their investments in Sharemax via the financial advice ombud – also known as the Financial Advisory and Intermediary Services (FAIS) Ombud – they “may have chosen to abandon and repudiate your interests” in the new companies.

But in its statement, the FSB says “nothing prevents any former investor in Sharemax from lodging a complaint with the FAIS Ombud against any party considered to be liable for any loss suffered”.

The FSB does, however, caution investors, “without suggesting a particular alternative”, that views on whether investors will succeed with complaints to the ombud will depend on appeals made by property syndicators against determinations already made by Bam and still subject to adjudication by the FSB Appeal Board.

The FSB says that until the Appeal Board has reached its decisions, “investors are well advised to consult their legal representatives before taking a decision on the matter”.

authority questioned

Haese claims that the financial advice ombud does not have the authority to investigate or deal with complaints against Sharemax.

Bam has repeatedly detailed exactly why she does have the authority to deal with property syndication complaints.

Bam’s determinations have not been against Sharemax the company, but against the financial services providers (FSPs) that were or are registered with the FSB and which, along with their representatives, were paid massive commissions to sell the shares and debentures in the Sharemax property syndications.

Bam’s determinations have also been against directors of Sharemax who were associated with Unlisted Securities South Africa (USSA), which was established as a sales arm of Sharemax. Bam has issued at least two important determinations against USSA and the Sharemax/USSA directors.

Earlier this month, Cornelius Johannes Botha, trading as CJ Botha Finansiele Dienste, and Sharemax directors Gerhardus Rossouw Goosen, Johannes Willem Botha, Andre Daniel Brand and Haese were granted leave to appeal against a determination by Bam, which made them personally liable for R580 000 in potential losses suffered by an ill, 67-year-old widow who had invested all her savings in Sharemax’s Zambezi syndication scheme.

The application by the former Sharemax directors for leave to appeal was refused by Bam, but it was granted by the FSB Appeal Board, acting in terms of the provisions of the FAIS Act. The Appeal Board will hear the appeal.

The FSB says it is trying its best to have this Sharemax appeal heard as soon as possible.

It says that much depends on the outcome of the various appeals that have been lodged against Bam’s determinations on property syndications.

Once the outcome of the appeal is known, the FSB will issue a follow-up media release in order to guide former Sharemax investors as to their options.

The firm is claiming R2-million while its seven directors are each claiming R1-million from Bosman, Hough and Chase Consulting because of damages that they allege were a result of Bosman’s conduct.

In its particulars of claim, Weavind & Weavind list a number of statements alleging that funds deposited into the firm’s trust account had been stolen. The allegations were apparently made in affidavits drafted in support of a complaint to the Law Society of Northern Provinces and a criminal case.

Weavind & Weavind says the allegations are wrongful and defamatory and implied that the directors were implicit in the theft and shared the proceeds. It claims the statements were made with the intention to defame the firm and its directors and injure their reputation.

Hough, who had assisted in compiling the affidavits, said that the damages claim lacked substance and merit and he confirmed that all the respondents named in the Weavind & Weavind application would defend the action.

He said the damages claim was aimed at scaring off other investors in the syndication to prevent them from lodging claims against the law firm.

Jaco Fourie, a senior legal official within the disciplinary department of the Law Society of the Northern Provinces says the organisation is awaiting a response from Hough to the allegations made by Weavind & Weavind. Once it has received the response it will present its evidence to a disciplinary committee of the law society.

A case of fraud was opened against the firm after Sharemax defaulted on monthly payments to investors in September last year. The commercial crimes unit is investigating the case.

Readers' Comments Have a comment about this article? Email us now.

It was the illegal release of the trust funds that started the whole feeding frenzy and made a joke of all the investor safeguards provided for in the Unfair Business Practices Act. Go for them Pierre. You have a lot of support out here - how about us starting a fund to pay a bounty on each one of those involved being put behind bars. - L. Oldacre

Pierre Hough
Big deal! I am informed by a Moneyweb journalist that Weavind & Weavind have struck a deal with the NPA in order to avoid prosecution for their part in the Sharemax fraudulent scheme. They will apparently turn state witness against the directors of Sharemax. As far as the damages action is concerned, they withdrew their claim against Toffie Risk and Retha Bosman in dubious circumstances, and they have done absolutely nothing about taking the damages claim against me any further. It was a smoke screen, a red herring to detract investors from also not filing complaints against them. I look forward to see the outcome of all this and who gets egg in the faces.
Reply · · 19 September 2013 at 01:51

The alleged contraventions are being investigated by the Serious Economic Offences Unit at the Directorate for Priority Crime Investigations, the Hawks.

Anyone found guilty of contraventions of the Banks Act is liable to a fine or imprisonment for a maximum period of 10 years or to both a fine and imprisonment.

Michael Blackbeard, the deputy registrar of banks at the Reserve Bank, confirmed this week that the statutory managers appointed to the Sharemax group of companies had, after being requested to do so, informed the Serious Economic Offences Unit of the SAPS that they were satisfied that Sharemax’s funding models contravened the Banks Act.

Blackbeard stressed that this was an administrative finding by the registrar’s office and “not a finding on criminality on the part of the persons involved in the scheme”.

“Criminal investigations and prosecutions are an area of responsibility of the SAPS and National Prosecuting Authority and it is for them to decide how to proceed,” he said.

Dominique Haese, the former financial director of Sharemax Investments and a director of many of the group companies, failed to comment.

The registrar of banks concluded in 2010 that Sharemax’s funding models contravened the Banks Act.

This resulted in the office appointing statutory managers to the Sharemax group of companies and its various property syndications in September 2010 to manage the repayment of funds illegally obtained from the public.

Business Report asked Blackbeard last year why criminal charges for contraventions of the Banks Act had not yet been lodged against Sharemax.

He said the main concern of the office was for the various Sharemax-related companies to resolve their concerns and to give effect to the office’s directive to repay investors’ funds.

He said the office’s mandate was very limited and focused on contraventions of the Banks Act but it would “in due course” instruct the managers to lay a charge with the SAPS.

Blackbeard added that the office was aware the SAPS was already investigating some of the “members” who had been involved in Sharemax schemes and it would provide the necessary assistance to the police and prosecuting authorities.

He previously confirmed that the registrar’s office had been challenged by Sharemax’s lawyers, which culminated in legal arguments relating to the proper interpretation of certain legal prescriptions.

Sharemax ceased making monthly payments to investors at the end of August 2010 when new investor funds dried up.

While under statutory management, the directors of Sharemax proposed a scheme of arrangement and offer of compromise to investors.

These schemes were sanctioned by the North Gauteng High Court in January, leading to the lifting of the statutory management directive.